Life Insurance Exam A
70. Upon the death of a primary breadwinner who is fully insured under Social Security, a dependent child is eligible to receive an income benefit until the age of A. 18 or 19, if unmarried and a student in elementary or secondary school B. 18 C. 22 or 23, if unmarried and a college student D. 19
A. 18 or 19, if unmarried and a student in elementary or secondary school
65. Of the following, which is not one of the three major loss exposures faced by insureds? A. Human losses B. Liability losses C. Financial losses D. Property losses
C. Financial losses
28. Which qualified plan is characterized by having a non-deductible contribution and tax-free distributions? A. Traditional IRA B. Keogh C. Roth IRA D. TSA's
C. Roth IRA
4. In a seven year vesting schedule, what percentage of employer contributions is vested after seven years? A. 0% B. 60% C. 80% D. 100%
D. 100%
71. The beneficiary chooses to receive the policy proceeds in the form of monthly income at the rate of $3,000 per month, until principal and interest are exhausted. What settlement option did the beneficiary select? A. Life-only income B. Interest-only to age 40 C. Fixed period D. Fixed amount
D. Fixed amount
14. An employee has lost access to their group term life insurance plan, but they are allowed to convert to a new plan. Which best describes this new plan? A. The new policy will be term life. The employee pays all premiums. B. The new policy will be term life. The employer will pay a portion of the cost. C. The new policy will be cash value. The employer will pay a portion of the cost. D. The new policy will be cash value. The employee pays all the premiums.
D. The new policy will be cash value. The employee pays all the premiums.
18. Which best describes industrial insurance? A. $2,000 or less in coverage and premiums collected by agent B. $10,000 coverage and premiums paid by mail C. $50,000 coverage and premiums paid by mail D. $100,000 coverage and premiums collected by agent
A. $2,000 or less in coverage and premiums collected by agent
50. Which of the following are common provisions found within many life insurance policies? A. Reinstatement, entire contract, incontestability B. Aviation, suicide, incontestability C. Pre-existing conditions, entire contract, grace period D. Right to return, reinstatement, war clause
A. Reinstatement, entire contract, incontestability
55. Per the Code, the best definitions of "shall" and "may" are: A. Mandatory & optional B. Permissive & mandatory C. Mandatory & permissive D. Mandatory & unknown
C. Mandatory & permissive
30. Members of the MIB are required to report A. Names of patients treated by member physicians B. Cause of death when death benefits are paid C. Medical conditions found during underwriting D. Amounts of life insurance applied for by all applicants
C. Medical conditions found during underwriting
45. In the insurance planning processes, the blackout period is: A. The period of time in which a policy can be rescinded due to the applicants intentional or unintentional misstatements on the application. B. The period of time in which the policy is still in force despite non-payment. C. The period of time after the youngest child reaches 16, but before the widow reaches 60, in which the surviving spouse receives no Social Security benefits. D. The period of time in which an employee is not yet eligible to join a group life insurance plan.
C. The period of time after the youngest child reaches 16, but before the widow reaches 60, in which the surviving spouse receives no Social Security benefits.
36. Roger, who is 35 years old, has a whole life insurance policy with a death benefit of $150,000. At the age of 65 he will no longer make premium payments. When will the cash values of his policy be $150,000? A. 65 B. 100 C. 35 D. 70
B. 100
26. A beneficiary decides to take the option that will pay the largest amount per payment, knowing after death no monies will be paid out to any descendents. The settlement option is: A. Life Guaranteed B. Life with Period Certain C. Life Income (Straight Life) D. Life Refund Income
C. Life Income (Straight Life)
39. E&O coverage A. Protects an agent in the case of unintentional negligence. B. Has very low deductibles. C. Does not protect the agent if the case against her is frivolous. D. Is unlimited.
A. Protects an agent in the case of unintentional negligence.
35. Pete, who is 35 years old, has a life insurance policy with a death benefit of $150,000. At the age of 65 the cash values of his policy will be $150,000. What type of policy does he have? A. Whole Life B. An Endowment to the age of 65 C. Life Paid-up at 65 D. A 30-Year Term Plan
B. An Endowment to the age of 65
33. An applicant for an insurance license has had a previous application for a professional license denied for cause within the last five years. The insurance commissioner will: A. Accept or deny the application after an exploratory hearing. B. Deny the application without a hearing. C. Accept the application as other licenses have no bearing on this application. D. Accept the application for a two year provisional license.
B. Deny the application without a hearing.
1. In disability insurance, the period of time between when the disability started and the commencement of benefits is the: A. Cancellation Period B. Elimination Period C. Probationary Period D. Grace Period
B. Elimination Period
58. The future account value of the annuity Alex purchased is connected to the S&P 500 index. What type of annuity did he purchase? A. Variable annuity B. Equity-indexed annuity C. Deferred annuity D. Immediate annuity.
B. Equity-indexed annuity
9. An agent follows the rules and terms of his agent contract. He is exercising his __________ authority. A. Implied B. Express C. Apparent D. Contractual
B. Express
5. Which is a false statement? The California Insurance Commissioner is: A. Elected by the people of California every four years B. Selected by the Governor as an appointee C. Is a representative to the National Association of Insurance Commissioners (NAIC) D. Capable of becoming the conservator of a financially impaired, or insolvent, insurer
B. Selected by the Governor as an appointee
13. In a non-contributory group policy: A. 75% of eligible employees must elect to join the plan. B. 100% of eligible employees must participate. C. 75% of employees must elect to join the plan. D. 100% of employees must be allowed to participate.
B. 100% of eligible employees must participate.
25. An insured has a terminal illness and needs access to 1/3 of his death benefit to pay mounting medical expenses. Which rider would meet the insured's current needs? A. Automatic Premium Loan B. Accelerated (Living) Benefit C. Assignment of Benefits D. Payor Benefit 26. A beneficiary decides to take the option that will pay the largest amount per payment,
B. Accelerated (Living) Benefit
20. Which rider pays a multiple of the original face amount? A. Accelerated Death Benefit B. Accidental Death Benefit C. Accidental Death and Dismemberment D. Cost of Living
B. Accidental Death Benefit
32. In contrasting stock insurers with mutual insurers, which statement is not false? A. Mutual insurers are owned by the shareholders, and issue participating policies. B. Stock insurers are owned by the shareholders, and issue non-participating policies. C. Stock dividends are tax-free while policy dividends are taxable. D. Non-participating policies can pay out dividends to the policyholders.
B. Stock insurers are owned by the shareholders, and issue non-participating policies.
37. Agent Darren offers life insurance for no cost to people buying property in a local development. When the Commissioner investigates his actions, which of the following is not a likely consequence? A. A civil penalty of up to $5,000 if his actions were not willful and $10,000 fine if they were willful. B. A cease and desist order will be issued. C. A hearing will be called. D. Darren will be charged with a felony and/or up to 10 years in jail.
D. Darren will be charged with a felony and/or up to 10 years in jail.
53. Which pair are Activities of Daily Living (ADLs)? A. Hearing & eating B. Dressing & seeing C. Speaking & sleeping D. Mobility & bathing
D. Mobility & bathing
44. All of the following are characteristics of the social insurance program know as Social Security, except: A. Full retirement age is 65 for all persons born after 1937. B. Fully insured status can be achieved by paying the FICA tax for forty quarters/credits. C. Retirement age is based upon the worker's birth year. D. The worker's full retirement benefits are determined by their PIA.
A. Full retirement age is 65 for all persons born after 1937.
63. Every admitted insurer in California must maintain a unit, or department, responsible for investigating which of the following? A. Possible arson activity B. Ratings and claims abuses by the insurers C. Possible fraudulent claims by the insureds D. Unfair trade practices by the insurers
C. Possible fraudulent claims by the insureds
24. How does the IRS classify the two different types of retirement accounts? A. Qualified and unfunded B. Fully funded and non-qualified C. Qualified and non-qualified D. Contributory and noncontributory
C. Qualified and non-qualified
64. Concerning qualified plans, which statement is false? A. ESOP's invest in a portfolio of stock selected by the employer. B. Profit-sharing plans allow employees to share in the employer's success. C. Defined benefit plans are often linked to an employee's years of service. D. Defined benefit and defined contribution plans have different penalties for early distribution.
A. ESOP's invest in a portfolio of stock selected by the employer.
23. According to the California Insurance Code, what information is the agent required to include on their business card? A. Identification of their relationship to the insurance company. B. License number must appear in the same size font as the phone number. C. Must not include any titles, designations, or licenses that are not currently held. D. All of the above.
D. All of the above.
52. Of the following, which best describes the difference between life insurance and annuities? A. Annuities create an instant estate, while life insurance liquidates an estate. B. Annuities provide a tax free income in retirement. C. Life insurance can be funded monthly, while annuities require a lump-sum funding. D. Life insurance creates an instant estate, while annuities liquidate a sum of money.
D. Life insurance creates an instant estate, while annuities liquidate a sum of money.
8. Tommy Greene has a CLU certification. Which of the following names would be automatically approved for use as his agency's name? A. Tommy Greene and Associates B. Thomas Greene, CLU, & Company C. Greene Insurance Agency D. None of these would ever be automatically approved.
D. None of these would ever be automatically approved.
7. Which of the following statements about a resident life-only agent licensing is incorrect? A. A licensee has 30 days to update a change in address. B. Licensees are required to have an in-state residential address. C. Loss of a previous professional license could result in the automatic denial of the life-only license application. D. A plea of nolo contendere is considered a conviction, thus it could hinder attempts to obtain a life-only license.
A. A licensee has 30 days to update a change in address.
17. All of the following are dividend options, except: A. Interest only option B. One-year term option C. Reduce the next premium payment D. Accumulate with Interest
A. Interest only option
16. Rank from lowest to highest, the amount of monthly income that would result from the following annuity settlement options: A. Life with refund option, life with 10 years certain, straight life B. Straight life, life with ten years certain, life refund option C. Life with ten year certain, life with refund option, straight life D. Life with refund option, straight life, life with 10 years certain
A. Life with refund option, life with 10 years certain, straight life
51. The term aleatory is best defined by which of the following? A. Unequal exchange in value B. Only one party to the contract is bound by a legally enforceable obligation C. If in dispute, the courts rule in favor of the insured, not the insurer D. Both parties to the contract are required to disclose to the other all material information
A. Unequal exchange in value
6. Which statement about life insurance code and ethics is not true? A. Marketing plans to offer free insurance as an inducement to buy or rent real property are prohibited. B. Acts of fair and unfair discrimination are prohibited. C. Agents are not permitted to advertise that an insurer is a member of any insurance guaranty association. D. The act of twisting could result in a license suspension for up to three years
B. Acts of fair and unfair discrimination are prohibited.
75. Gloria owns an annuity in which she has invested $5,000 a year for 10 years. She is currently receiving $8,000 annually from her annuity. By the time all of the principal and interest is paid out, Gloria will have been paid $100,000. How much of the annual benefit is taxable? A. $0 B. $4000 C. $2000 D. $900
B. $4000
22. Which of the following would not be considered a speculative risk? A. Every week your client plays $20 on the lotto. B. Any action that could do harm to your clients well-being such as reckless driving. C. Your client invests 5% of his salary into the defined benefit plan at his workplace. D. All of the above situations involve some risk.
B. Any action that could do harm to your clients well-being such as reckless driving.
59. The entire contract can include many components. Which of the following cannot be a part of the entire contract? A. Any riders B. Any documents referenced by the policy C. The policy D. A copy of the application
B. Any documents referenced by the policy
73. A universal life policy may be surrendered for its cash value: A. Only when the cash value equals the death benefit B. At any time C. Within 30 days of an interest payment D. Only if there are no outstanding loans
B. At any time
74. California rules for annuity sales require all agents to present a specific disclosure document in advance to any senior citizen who is not already a client whenever a sales appointment will be conducted in the person's home. How far in advance must the prospect receive the written notice? A. One business day B. At least 24 hours C. Prior to entering the home D. Three calendar days
B. At least 24 hours
60. Which of the following can be written as a group policy? A. Life paid-up at 65 B. Credit life C. Endowment at 65 D. Survivorship life
B. Credit life
38. A life settlement broker A. Places property & casualty insurance with non-admitted carriers. B. Negotiates life settlement contracts between an owner and providers. C. Sells single premium immediate annuities to seniors. D. Assists beneficiaries in filing a claim on a life insurance policy.
B. Negotiates life settlement contracts between an owner and providers.
72. What is the usual federal income tax treatment of individual life insurance? A. Deductibility of premiums, taxable death benefits B. Non-deductibility of premiums, non-taxable death benefits C. Deductibility of premiums, non-taxable death benefits D. Non-deductibility of premiums, taxable death benefits
B. Non-deductibility of premiums, non-taxable death benefits
54. The definitions of mortality and morbidity: A. Odds of sickness versus the odds of disability B. Odds of dying versus the odds of disability C. Odds of sickness versus the odds of dying D. They are virtually the same concept
B. Odds of dying versus the odds of disability
12. Mrs. Anderson needs to invest the proceeds from her late husband's life insurance. She invests a portion of the money into an annuity. Since she is 62, and is still working, she decides to purchase a single premium deferred annuity. She won't need an income for a few more years. What should the agent make sure Mrs. Anderson understands? A. As a life insurance product, future proceeds are tax free. B. She has a 30 day free look period in case she changes her mind. C. Since she only has a few more years before she retires, she should invest with the objective to make as much money as possible. Her time horizon is limited. D. She will have to begin taking withdrawals within six months of receiving the proceeds.
B. She has a 30 day free look period in case she changes her mind.
21. A life-only agent issues a binding receipt to his client since the client did include a check for the initial premium with his completed application. Which statement is true? A. The client is covered during underwriting. B. The agent faces potential suspension or revocation of their license. C. The client is not covered during underwriting since binders only start once underwriting is complete. D. Since the medical exam hasn't been completed yet, the client is not covered at all.
B. The agent faces potential suspension or revocation of their license.
42. What is not likely to happen with a return of premium policy? A. The total premiums paid are added to the death benefit B. The total premium paid is returned to the insured when the policy is cancelled C. These policies typically have a higher premium than policies without this feature D. Increasing term insurance is used to provide this additional benefit
B. The total premium paid is returned to the insured when the policy is cancelled
2. Which of the following characteristics would not stop an insurance company from accepting an insurance risk? A. The item to be insured faces high catastrophic loss exposure. B. The item to be insured is part of a large group of homogeneous exposure units. C. The item to be insured has a market value difficult to determine. D. The item to be insured holds no hardship to the owner should it be lost or damaged.
B. The item to be insured is part of a large group of homogeneous exposure units.
27. After 12 years, the policyowner decides she no longer needs the large death benefit on her whole life policy. She calls you, her agent, and you tell her she can use the reduced paid-up non-forfeiture option. Which of the following is not true about the new policy? A. The new policy will require no further premium payments. B. The new policy will expire in 10 years. C. The new death benefit is much lower than the original policy. D. The new policy will be in effect until the age of 100, or until she dies, whichever occurs first.
B. The new policy will expire in 10 years.
10. Any person who misappropriates fiduciary funds for personal use is guilty of: A. Fraud B. Theft C. Misrepresentation D. Pre-texting
B. Theft
67. Which statement is an accurate description of life insurance policy dividends? A. They are likely to be larger in nonparticipating policies. B. They are not taxable and are not guaranteed. C. Stock insurers pay dividends to policyowners, mutual insurers pay dividends to shareholders. D. They are guaranteed to be paid and they are taxable as income.
B. They are not taxable and are not guaranteed.
41. A policy illustration may not include: A. The name of the insurer, the name of the client, and the name of the producer. B. Vanishing premiums if the policy becomes paid up with non-guaranteed elements paying future premiums. C. An interest rate for nonguaranteed elements that is less than the earned interest rate of the disciplined current scale. D. Depictions of policy performance being less favorable than the insurer's illustrated scale.
B. Vanishing premiums if the policy becomes paid up with non-guaranteed elements paying future premiums.
31. All of the following statements about survivorship life are true, except: A. They are particularly well suited to help families deal with estate tax burdens. B. The face amounts are often for $1,000,000 or more. C. The face amount is payable after the first death. D. As a form of joint life, it covers two individuals on the same policy.
C. The face amount is payable after the first death.
11. According to the code, any person legally capable of making an insurance policy is considered: A. An agent B. A broker C. An insurer D. An underwriter
C. An insurer
15. Bob and Neal are partners in a law firm together. If one of them were to pass away, they want to make sure that their surviving family will receive a fair value for their stake in the business. What life insurance arrangement would be most suited for transitioning the business during this time of loss? A. Executive Bonus Plan B. Split Dollar Plan C. Buy-Sell Agreement D. Deferred Compensation Plans
C. Buy-Sell Agreement
57. Sam has a $200,000 convertible life insurance policy. If he chooses, he can: A. Purchase an individual annuity for any face amount using the 1035 exchange privilege. B. Purchase another term policy and increase his death benefit without proof of insurability. C. Convert to a whole life policy for the same face amount without proof of insurability. D. Convert to another term policy with a lower face amount without proof of insurability.
C. Convert to a whole life policy for the same face amount without proof of insurability.
43. When a client is declined after submitting a prepaid application for life insurance: A. The insurance company can keep the initial premium paid. B. The client is still covered for 90 days on the conditional receipt. C. The insurance company must refund the entire premium paid. D. The client will pay an increased premium.
C. The insurance company must refund the entire premium paid.
68. Under the terms of the 10-day free-look period, a claim will be paid A. If the policy has not been returned, whether or not a premium was paid. B. Under no circumstance; there is no coverage until the 10-day period has passed. C If the premium has been paid and the policy has not been returned. D. Only if the policy is returned.
C. If the premium has been paid and the policy has not been returned.
61. How does the incontestability clause benefit the insured? A. It dictates that if the insured and beneficiary die together, and the order of death is unknown, the beneficiary is presumed to have died first. B. It protects the death benefit from attachment by creditors after the insured passes away. C. It keeps the policy from being cancelled if, after two years, it is discovered that there was an error, concealment, or misrepresentation by the policyowner. D. It keeps the policy from lapsing should the premium go unpaid by borrowing from the cash value.
C. It keeps the policy from being cancelled if, after two years, it is discovered that there was an error, concealment, or misrepresentation by the policyowner.
56. Starting from lowest to highest, rank the initial premium paid by the client for these insurance policies below: A. Ordinary whole life, modified whole life, single premium whole life B. Single premium whole life, modified whole life, ordinary whole life C. Modified whole life, ordinary whole life, single premium whole life D. Modified whole life, single premium whole life, ordinary whole life
C. Modified whole life, ordinary whole life, single premium whole life
66. What type of insurance would a person select as the most efficient method of paying the outstanding debt on their home in the event of death? A. Level term B. Family maintenance C. Mortgage redemption (decreasing term/mortgage protection) D. Joint life (first-to-die)
C. Mortgage redemption (decreasing term/mortgage protection)
3. All of the following statements about mutual insurance companies are correct except: A. If a mutual company goes public, it demutualizes B. Mutual companies issue policies referred to as participating C. Policy dividends issued by mutual companies are guaranteed and not taxable D. Dividends allow policyholders to share in a mutual company's divisible surplus
C. Policy dividends issued by mutual companies are guaranteed and not taxable
46. A client receives a lump-sum inheritance. He'd like to use the money to create a lifetime income since he'll be retiring soon. He purchases an annuity and wishes to receive payments beginning in 2 months. What did he buy? A. Flexible Premium Immediate Annuity B. Single Premium Deferred Annuity C. Single Premium Immediate Annuity D. Flexible Premium Deferred Annuity
C. Single Premium Immediate Annuity
69. When a policy continues because of a payor benefit clause, it means A. The insurer pays monthly disability income to the premium payor. B. The insured is only covered to age 18, then the policy expires. C. The owner of the policy is disabled or has died. D. At age 21 or 25, the death benefit is reduced by up to 50%.
C. The owner of the policy is disabled or has died.
49. After the insured passes away, it is discovered that the policy was rated based upon an incorrect age. The client lied about their age when filling out the application 8 years earlier. What effect will this have on the benefit? A. The policy is incontestable. Full claim will be paid. B. The policy will be rescinded as it is contestable. C. The proceeds payable will be adjusted. D. The shortage of premium will be deducted from the death benefit.
C. The proceeds payable will be adjusted.
62. Under the cost of living adjustment rider, the policy: A. Will see an increase in its face value each year by a set percentage. B. Will increase or decrease along with the CPI. The premium will adjust accordingly. No evidence of insurability is required. C. Will only increase with the inflation rate. There will be an additional premium charged, but no evidence of insurability is required. D. Will allow the insured to purchase additional insurance with evidence of insurability.
C. Will only increase with the inflation rate. There will be an additional premium charged, but no evidence of insurability is required.
34. In order to be financially solvent, an insurer must accomplish all of the following, except: A. Reinsure any risk in excess of state retention limits. B. Possess enough assets to cover its liabilities. C. Maintain an amount at least equal to its required minimum paid-in capital. D. Contribute a specific amount of capital reserves to the state.
D. Contribute a specific amount of capital reserves to the state.
29. Which of the following statements about the process of replacement is incorrect? A. The replacing insurer must notify the original insurer within 3 days of the potential replacement. B. The agent and the applicant must sign a statement as to whether replacement will be involved in the transaction. C. A copy of the signed replacement disclosure statement must be left with the applicant. D. Copies of any written illustration or comparisons used in the process of making the replacement do not need to be included with the submitted application.
D. Copies of any written illustration or comparisons used in the process of making the replacement do not need to be included with the submitted application.
48. Your policy contains the guaranteed insurability rider. When can you purchase additional insurance on your policy? A. Any time you wish once proving you are insurable for the additional coverage. B. At specified ages or dates after providing evidence of insurance. C. Without proof of insurability when the cost of living increases. D. Without evidence of insurability at specified ages or dates.
D. Without evidence of insurability at specified ages or dates.
40. Candee owns a participating whole life policy and uses her policy dividends to buy more of the same type of coverage for herself. Candee has chosen the: A. One-year term option B. Accumulation at interest option C. Reduced paid up option D. Paid-up additions option
D. Paid-up additions option
47. The applicant works 2 different jobs. The underwriter will rate him according to which job? A. The job with the most hours worked each week on average. B. The job with the highest income. C. The job the insured is most closely trained for professionally. D. The job that is most hazardous.
D. The job that is most hazardous.
19. A client's flexible premium is invested into a separate account. What type of insurance product did he purchase? A. Universal Life B. An Annuity C. Variable Life D. Variable Universal Life
D. Variable Universal Life